The U.S. Court of Appeals for the Fourth Circuit recently upheld the judgment against Tuomey Healthcare System, Inc. (Tuomey), in a qui tam False Claims Act case predicated on Stark Law violations. The district court in the case had previously upheld a jury verdict finding that Tuomey, a community hospital in South Carolina, violated the Stark Law and False Claims Act by knowingly billing for services referred by 19 physicians with whom Tuomey had illegal part-time employment agreements. The detailed history of the case is available in our October 3, 2013, issue of Health Law Update.

The Fourth Circuit addressed a number of issues raised by Tuomey on appeal related to the complex procedural history of the case. The court rejected Tuomey’s argument that it did not have the requisite intent to violate the False Claims Act because it reasonably relied on the advice of counsel in structuring the physician compensation arrangements. A fact the court found particularly compelling was that Tuomey had “shopped for legal opinions approving of the employment contracts” and ignored the negative opinion of an attorney with specialized knowledge of the Stark Law.

Tuomey’s attacks against the district court’s judgment amount of over $237 million were also wholly rejected by the Fourth Circuit. The decision has valuable guidance for False Claims Act defendants regarding the importance of presenting evidence about damage calculations at trial for the jury to consider. Additionally, the Fourth Circuit held that the treble damages award and civil penalty were not unconstitutional under the Fifth and Eighth Amendments to the U.S. Constitution.

A concurring opinion noted that the complexity of the regulatory environment that resulted in the judgment “will result in a likely death sentence for a community hospital in an already medically underserved area,” underscoring the criticality of Stark Law compliance in physician-hospital relationships. Tuomey has stated that it will continue settlement discussions with the government, and has announced a potential collaboration with another South Carolina health system.